Economic Impact of the Turkish Brewing Sector Economic Impact of the Turkish Brewing Sector Amsterdam / Istanbul, June 2011 A report commissioned by The Beer and Malt Producers’ Association of Turkey and conducted by Ernst Young Kurumsal Finansman Danışmanlık A.Ş. and Regioplan Policy Research. Copyright Notice This report is protected by copyright. It may not be reproduced, in whole or in part, without the approval of the commissioners of the report. This applies in particular to any form of reproduction, microfilming and incorporation in electric systems. Table of contents ► Key Messages 1 ► About The Study 2 ► 1 The Turkish Beer Market 4 ► 2 Government Revenues 11 ► 3 Value-added 17 ► 4 Employment 19 ► 5 Purchases Made By Breweries 26 ► 6 Developments 29 ► Bibliography 32 ► Annex I: Methodology And Scope 33 ► Annex II: Data Sources 35 ► Annex III: Variables And Estimates 36 ► Annex IV: Exchange Rates 40 ► Annex V: Inflation Rates 41 ► Annex VI: Glossary 42 ► Annex VII: Country Abbreviations 46 ► Annex VIII: Impact On Suppliers 47 ► Annex IX: Contact Information 48 Economic Impact of the Turkish Brewing Sector i Key Messages Key messages of the economic impact of the Turkish brewing sector ► The Turkish brewing sector is dominated by two large companies: Anadolu Efes Biracılık ve Malt Sanayi A.Ş. (Efes) and Türk Tuborg Bira ve Malt Sanayii A.Ş. (Tuborg). Besides them, there are five smaller breweries active in the Turkish beer market. ► In 2010, total beer production in the Turkish brewing sector was 10,278,536 hectoliters (hl) of beer, 0.6% more than in 2009. ► Approximately 10% of the beer that is produced yearly in Turkey is exported. The main export markets are Germany, Lebanon, Iraq and Azerbaijan. In 2010, 1,077,333 hl (9% more than in 2009) of beer has been exported representing a value of €51.6 million. ► The Turkish import of beer is considered to be insignificant. In 2010, 13,800hl of beer was imported representing a value of €1 million. ► In 2010, the domestic sales (consumption) amount to 9,215,003 million hl of beer, which is 20,100 less than in 2009. The beer consumption per capita in Turkey is considered to be low. In 2010 it amounted to 12.4 liters per capita, while the average for EU27 countries was 75.3 liters. ► In 2010, the total employment effect of the brewing sector is estimated to be 53,570 jobs, arising from the production and sale of beer. These are jobs at the breweries themselves, in the supply sectors and jobs in the on-trade and retail sectors. Compared to 2009, the number of jobs generated by the beer sector decreased by 2,100 personnel. ► The value-added due to beer-related activities was approximately €763 million in 2009 and €818 million in 2010; an implied increase of 7%. ► Accordingly, total revenues for the government of Turkey were €1.6 billion in 2010 and €1.3 billion in 2009. These revenues include VAT, social security contributions, excise duties and corporate taxes. ► When the revenues for the government per 1000 hl produced are compared, the revenues for the Turkish government are much higher than those of EU Member States with a comparable GDP to Turkey. In absolute figures the Turkish government’s revenues are also almost the same amount as the revenues for the governments of Ireland, Finland and Sweden, which are the countries with the highest taxation on alcoholic beverages in the EU. ► Since 2002, the Turkish excise rate levied on beer has been raised eight times, and is significantly above the average excise rate levied in EU Member States. It is almost as high as the excise rate in Finland, which has the highest excise tax within EU countries. ► In Turkey, for each bottle of beer sold off-trade, 70 cents goes to the government in the form of VAT and excises, whereas for on-trade 78 cents of each Euro goes to the Turkish government. Compared to the EU Member States, these rates are relatively high. Recent or upcoming developments that (may) impact the contribution of beer industry to the Turkish economy are: ► higher prices for agricultural inputs; ► difficulties in providing barley for beer; ► further increases in the taxation on beer; ► new legal constraints on advertisement and merchandising; ► smoking ban; ► unregistered structure in other alcoholic beverage sectors; and ► illegal wine production and sales. Economic Impact of the Turkish Brewing Sector 1 About The Study Purpose of the study This study has been commissioned by the Turkish Beer and Malt Producers' Association (BMÜD) to quantify the economic impact of the brewing sector in Turkey. Economic impact Three different impacts are distinguished to provide a complete picture of the economic effects of the beer sector: the direct impact, indirect impact and induced impact. The direct impact is defined straightforwardly as the effect generated directly by beer-producing companies. The indirect impact represents the effect of beer drinks producers on their suppliers. A diverse range of goods and services need to be purchased to be able to produce beer drinks. To mention just a selection: water, agricultural products, e.g. hops, malt and malting barley, and packaging materials such as bottles and cardboard. Beer-producing companies also hire engineers, marketers, communications agencies and many more services. This study distinguishes seven supply sectors: suppliers of raw materials; utilities (electricity, gas and water); packaging and bottling industry; transport and storage; media, marketing and communication; equipment, manufacturing and other industrial activities; and other services/activities such as business activities, community, social and personal services. The induced impact is the economic contribution of firms in off-trade outlets and the on-trade sector resulting from the sale of beer. The sale of beer drinks by off-trade outlets and on-trade firms is an important source of economic benefits. The reported induced effects only concern the effects caused by sales of beer. For example effects caused by the sales of other drinks in on-trade (such as coffee, tea, juices, spirits, and wine) are not within the scope of this study and are thus not taken into account. We measured the effects in three areas, which are mentioned and defined below: Employment is the number of persons employed or the number of jobs. Value-added is the amount of value that is added to a product or service by a company before the product is offered to customers. In other words, the difference between the production value and the value of purchased inputs (goods and services). In economic terminology value-added is also defined as the reward for all production factors (mainly labor, capital, entrepreneurship). Government revenues include all amounts of money received from sources outside the government entity from taxation, fees, fines, and licenses. In the scope of this study it is in particular the income the government receives from excise duties, VAT, corporate taxes, social security contributions and income and payroll taxes. Economic Impact of the Turkish Brewing Sector 2 Data collection Most of the reported outcomes are based on questionnaires received from the BMÜD or the two large brewing companies (i.e. Anadolu Efes Biracılık ve Malt Sanayi A.Ş. (Efes) and Türk Tuborg Bira ve Malt Sanayii A.Ş. (Tuborg)). In case data was not available, we used other existing data that have been derived from a variety of sources. The base years for the analysis are 2009 and 2010. If data was not available for these years, data from the previous year (2008) was used. In hierarchical order of importance these sources are: ► data from the Tobacco and Alcohol Market Regulatory Authority in Turkey (TAPDK); ► data obtained from a questionnaire completed by the national association representing the beer sector (BMÜD); ► data collected directly from Efes and Tuborg through a detailed questionnaire; ► data from the Turkish Statistical Institute (Türkiye İstatistik Kurumu, TUİK); ► data from additional (public) sources, such as the Brewers of Europe, the European Commission and Eurostat. Economic model Some of the reported outcomes are estimated on the basis of a model constructed by Ernst & Young and Regioplan Policy Research. For this reason, these outcomes are not a direct representation and are dependent on methodological choices made by Ernst & Young and Regioplan Policy Research. These choices are elucidated in Annex III. The methodology used for estimating the economic impact is described in Annexes I to III. Country comparisons In this report we make a number of comparisons between the Turkish economic impact of the brewing sector and figures of European Union Member States which we previously calculated as part of another study. We make comparisons with two different groups of countries. The first group consists of countries with a similar gross domestic product per capita in purchasing power standards (GDP PPS) as Turkey: Bulgaria, Romania, Latvia, Poland, Lithuania, and Hungary. For the second comparison group we selected the four EU Member States with the highest taxation on beer in the EU: The United Kingdom, Ireland, Sweden and Finland. Apart from these two comparison groups, we also make comparisons with the average of the EU Member States (EU27). The comparison study is based on data of 2009. Data of other countries for 2010 will be available in August 2011. Comparisons with neighboring countries were not possible due to the lack of comparable data or the reliability of the data from countries such as Iran, Iraq, Georgia, Syria and Armenia. For further details on the methodology and scope of this study, please refer to Annex I, II, and III. Economic Impact of the Turkish Brewing Sector 3 1 The Turkish Beer Market 1.1 Highlights Figure 1.1: Key figures for beer sector in Turkey Key figures 2009 2010 Production1 10,219,290 hl 10,278,536 hl Exports 988,133 hl 1,077,333 hl Imports 3,925 hl 13,800 hl Consumption 9,235,081 hl 9,215,003 hl Production value €681 million €752 million Consumer spending on beer €2.3 billion €2.7 billion Brewing companies 7 7 Breweries 11 11 Sources: TAPDK; Questionnaires; and The Brewers of Europe Beer Statistics 2010 edition.